The Tax Appeals Tribunal has delivered a setback to the Kenya Revenue Authority (KRA), cancelling a KSh 67.9 million assessment it issued against a Nairobi landlord after attempting to revive a tax dispute dating back more than a decade.
- •The case centered on a large loss the taxpayer, Vijay Kumar Patel, declared in 2014 from his rental business.
- •That loss, filed legally at the time, was carried forward and used to offset income in later years thus reducing how much tax he owed between 2019 and 2022.
- •In early 2025, the tax authority slapped Patel with the inflated assessment on grounds that his once-ignored loss was suddenly “unsupported,” improbably large, and unfit to be carried forward.
The Tribunal looked at KRA’s decision to reject Patel’s 2014 losses and determined that although tax rules had changed over the years, these changes didn’t apply to past years, and Patel had filed his returns following the old rules.
Moreover, since KRA had accepted these losses in previous audits and no new evidence showed wrongdoing, the Tribunal found that rejecting the losses was unfair and wrong.
“While the Finance Act 2025 now imposes a 5-year limit prospectively, it should not operate to extinguish pre-existing loss entitlements accumulated under the former indefinite regime. A view that losses incurred prior to 2020 are deemed expired would therefore be arguably inconsistent with principles of fairness,” the tribunal ruled.
Patel’s case rested on a straightforward point: KRA had reviewed his records repeatedly over the years, asked for documents, carried out overlapping audits, then closed each one without objection. Only to come back a decade later demanding nearly KSh 70 million, composed of KSh 46.7 million in principal tax plus KSh21.2 million in interest.
His troubles began in 2020, when the authority launched a wide-ranging review of his rental business going back to 2014 and asked for everything from bank statements to repair costs, including loan files from before 2011. These were records that a court ruling had already barred KRA from touching after officers carted them away in an unlawful raid years earlier.
In August 2024, KRA focused on his 2014 tax loss of KSh229,885,439, made up of KSh178,050,184 in deductible expenses and a KSh95,185,927 exchange loss. Because the records were more than a decade old, and outside the five-year statutory retention window, Patel could not retrieve them.
KRA then treated this as “willful neglect,” and disallowed KSh 191,894,600 of carried-forward losses. Patel objected to the assessment arguing that the agency was out of time, out of evidence, and out of order.
KRA maintained that it was entitled to reopen the old year because Patel had acted with “willful neglect” by failing to produce documents from that period. It also pointed to ledger migrations in KRA’s systems and said the taxpayer should have raised concerns earlier.
The Tribunal carefully reviewed whether KRA’s assessments for 2014–2018 were legally valid, focusing on the five-year statutory limit for amending tax returns. While the law allows reopening older assessments in cases of fraud, evasion, or gross neglect, the Tribunal found that KRA failed to provide evidence that Patel acted with willful or gross neglect.
Prior audits between 2020 and 2024 had already cleared the same periods without issue, and missing documents from 2014, especially after system migrations, were not proof of deliberate wrongdoing. As a result, the Tribunal ruled that the assessments were time-barred and could not be enforced.
“The Tribunal notes that the Respondent had conducted several prior audits and verifications between 2020 and 2024, covering the same periods (2014–2019), all concluding without adverse findings. The Tribunal therefore finds that the Respondent lacked statutory authority to reopen time-barred years,” the ruling stated.
